FBAR reporting obligations require a US taxpayer holding $10,000 or more in a foreign financial account, at any moment in time during the tax year, to file a Report of Foreign Bank and Financial Accounts (FBAR). Once this obligation is known, at least in some contexts, the FBAR reporting requirement seems fairly obvious. Funds held in a foreign bank or securities that exceed $10,000 would rather clearly trigger an FBAR filing requirement. However, services provided over the Internet and hybrid services that can be used for multiple purposes can sometimes obscure these distinctions.

Such was the case in United States v. Hom, where online poker accounts and an online payment service triggered an FBAR obligation. This matter – which was pursued without a tax lawyer on a pro se basis – further emphasizes the value of representation by an experienced tax lawyer for FBAR and other international tax issues.

What were the facts in Hom?
Mr. Hom gambled through the internet poker sites PartyPoker.com and PokerStars.com in 2006 and 2007. At the time, PartyPoker was based in Gibraltar and Pokerstars was based on the Isle of Man. To transfer funds into these poker services, Mr. Hom utilized a UK-based service called FirePay. In short, the FirePay account acted as both a location to store money and as a conduit to transfer Mr. Hom’s money to the poker services. Thus Mr. Hom held three accounts: Pokerstars, PartyPoker and FirePay.

After a routine audit, the IRS discovered that Mr. Hom had not filed an FBAR until 2010. Penalties were assessed for each of the 3 accounts for 2006 at $10,000 per account. An additional $10,000 penalty for the Pokerstars account for 2007 was also assessed. Thus, Mr. Hom faced $40,000 in fines and penalties – with interest – due to FBAR compliance issues.

Mr. Hom challenged the penalties largely on two grounds. First, he alleged that these were not foreign “bank, securities or other financial account[s]” that would give rise to a FBAR reporting requirement. Second, he challenged the determination that these accounts were foreign accounts for tax purposes.

Online poker accounts and other digital accounts can create an FBAR obligation

The district court did not find Mr. Hom’s assertion that these accounts did not constitute a “bank or other financial accounts” for the purposes of the applicable statute and regulations particularly compelling. While the court acknowledged that what constitutes “other financial account[s]” under 31 C.F.R. 103.24 has not been addressed by the 9th Circuit Court of Appeals, the court pointed out that:

The Court of Appeals for the Fourth Circuit has held that an account with a financial agency is a financial account under Section 5314.

Section 5312 (a)(1) which states that “financial agency” includes a “person acting for a person” as a “financial institution” or a person “acting in a similar way related to money.”

Section 5312(a)(2) enumerated 26 entity types that can qualify as a “financial institution.”

Given the extremely broad definition, and the fact that Firepay, PartyPoker, and Pokerstars acted as a commercial bank (since at an account-holder’s request the companies will store, hold, or transfer money and funds) the accounts were financial accounts.

The defendant’s argument that these were not “foreign” accounts and thus not subject to FBAR requirements also failed. The court found that Mr. Hom’s accounts were digital constructs held by foreign financial institutions.

Furthermore, the court found the defendant’s reliance on the statement found on the 2010 FBAR form, “[t]he geographic location of the account, not the nationality of the financial institution in which the account is found determines whether it is an account in a foreign country,” to be unconvincing. The court noted that this language did not have legal weight citing 9th Circuit precedent which states, “Interpretation by taxpayers of the language used in government pamphlets [cannot] act as an estoppel on the government, nor change the meaning of taxing statutes.” Adler v. Commissioner, 330 F.2d 91, 93 (9th Cir. 1964).
What are the implications of this ruling?

The major implication is that those who hold digital, online accounts through non-US companies may have an FBAR reporting requirement. While in this instance the accounts were for online poker, it is likely that any online account in a foreign country will give rise to an FBAR reporting obligation. Other types of online gaming accounts, payment services, or any other service that approximates a bank should likewise be treated with caution.

Additionally, this matter sharply illustrates the value of an experienced tax professional. In recognizing that the case presented a novel issue, and that Mr. Hom may have failed to properly brief the court, the court itself put out a public call for pro bono representation for Mr. Hom. Unfortunately, pro bono counsel did not answer, and Mr. Hom proceeded to advance arguments that were either off-point or unlikely to influence the court. To start with, a tax attorney could advise his or her client of potential remedial measures, such as participation in the Offshore Voluntary Disclosure Program (OVDP), before a tax concern turns into a tax audit with significant fines and penalties. Furthermore, an experienced tax lawyer would have undoubtedly informed Mr. Hom that his reliance on the instructions contained on the FBAR forms was misguided, but might have argued to the court that reliance on the form instructions was reasonable for an unrepresented taxpayer. Working with an experienced tax professional can help you avoid making a costly mistake similar to those made by Mr. Hom.

If you are facing international tax compliance issues including FBAR problems, The Brager Tax Law Group may be able to work with you to resolve these issues. To schedule a confidential consultation with an experienced tax lawyer call 800-380-TAX LITIGATOR, or contact our law offices online.

US citizens, legal permanent residents, and other covered individuals have an obligation to file and pay taxes on all sources of worldwide income. If an individual does not satisfy his or her filing and payment obligations, he or she may be subject to penalties for a failure to pay taxes, the failure to file taxes, or both.

While the following article will address a number of the penalties which can apply for non-filed taxes or nonpayment of taxes, this article does not address when civil or criminal fraud penalties could apply. Furthermore, if the failure to file or pay includes the failure to report sources of foreign income or foreign accounts, additional problems are likely to arise. The experienced tax attorneys of the Brager Tax Law Group can discuss your concerns, identify legal problems and work to develop effective solutions to your tax compliance issues.

What are the consequences for failure to file taxes?

A failure to file has occurred if, by the tax return’s due date, you have neither submitted a return nor made a request to the IRS for an extension of time. An individual or business entity’s failure to file is addressed by an array of statutes, including:

IRC 6651: Addresses the failure to file a tax return or to pay required taxes. IRC 6651 (a)(1) addresses the failure to file, while IRC 6651 (a)(2) addresses the failure to pay.

IRC 6654: Addresses the failure to pay an estimated tax onbligation. This law typically requires four estimated yearly payments with each payment comprising roughly 25% of the estimated tax liability. The amount of penalty is calculated as per IRC 6621.

IRC 6698: Addresses the failure to file a return for a partnership. Partnership returns are made mandatory by IRC 6031.

IRC 6011(e)(2): Addresses the failure to provide a required electronic return for partnerships with greater than 100 partners. The penalty is assessed for each partner beyond the 100 partner threshold.

IRC 6699: Addresses the failure to file for an S Corporation.

The failure to file penalty is typically greater than a failure to pay penalty. In most circumstances, the failure to file penalty is assessed at 5% of the unpaid taxes. This penalty is assessed for each and every month or part of a month where the tax is late. That is, if your filing deadline was April 15 and you do not file until June 2 of the same year, a penalty would be assessed for three months: May and the partial months of June and April. However, this penalty is capped at 25% of the amount of unpaid taxes. In contrast, if your return is filed more than 60 days late, a minimum penalty of the lesser of 100% of the unpaid tax or $135 will be imposed.

What are the penalties for failure to pay my full tax obligation?

The failure to pay penalty is assessed at half of 1% of the unpaid tax liability for each month or part of a month where the unpaid tax is overdue. Thus, as discussed above, the failure to pay taxes for even a single day in a month can result in the imposition of the full penalty. The failure to pay penalties can apply to income, gifts, estates, and certain excise tax returns.

However, it is important to note that a strategic request for an extension can reduce or eliminate potential tax penalties. That is, if a taxpayer requests a filing extension prior to the original deadline and pays a minimum of 90% of the actual tax owed by the original due date, then no failure-to-pay penalty will be assessed provided that the balance is covered by the extended payment date.

What if both the failure to pay and the failure to file penalty apply?

When both a failure-to-pay and a failure-to-file penalty can be imposed in any month, the penalty will be computed by subtracting the failure to pay penalty from the failure to file penalty. However, as discussed above, if your return is filed more than 60 days late, the IRS can impose a minimum penalty of the lesser of $135 or 100% of the unpaid tax.

The penalties that can be imposed due to a failure to file or pay taxes in a timely manner can, generally, only be eliminated if a taxpayer can show reasonable cause or otherwise prove that the failure was not due to willful neglect. The Brager Tax Law Group can work with US taxpayers to develop a legal strategy to correct tax compliance issues. To schedule a confidential consultation with an experienced tax lawyer call 800-380-TAX LITIGATOR, or contact our law offices online.

Zurich, Switzerland-based Credit Suisse is the first global banking organization in more than 10 years to plead guilty to a crime. In May 2014, Credit Suisse pleaded guilty to conspiracy to aid and assist U.S. taxpayers in filing false income tax returns and other documents with the Internal Revenue Service (IRS). Under terms of the plea deal and other agreements with state and federal agencies, Credit Suisse will pay roughly $2.6 billion in penalties. While prosecutors have obtained guilty pleas from subsidiaries of global banking units, the Credit Suisse guilty plea shows that federal prosecutors are willing and able to pursue even the largest of banking, investing and private asset units.

This news should be especially worrying for US-based holders of undisclosed foreign accounts or those with links to Credit Suisse, since Credit Suisse has agreed to hand over all evidence regarding its activities. According to US Attorney General Eric Holder, “[The Credit Suisse] case shows that no financial institution, no matter its size or global reach, is above the law.” If you have failed to respond to a Foreign Account Tax Compliance Act (FATCA) letter or have failed to file FBAR, you could likewise face significant fines and penalties.

What wrongful tax acts were committed?

The statement of facts that was filed with the plea deal noted a number of means utilized by Credit Suisse in aiding its US clients to conceal undisclosed foreign accounts. By accepting the plea deal, the organization admitted to utilizing a variety of methods to conceal assets and avoid paying taxes, including:

Destruction of account records.

Failing to maintain records related to the accounts within the US.

Repatriation of funds in undeclared accounts through the use of offshore debit and credit cards.

Use of the company’s correspondent US bank accounts or providing hand-delivered cash within the US to facilitate the withdrawal of funds from undisclosed accounts.

Evasion of currency transaction reporting obligations.

Aiding and assisting clients in the use of sham entities to conceal undeclared accounts.

The US Department of Justice states that the investigation that uncovered these methods began in 2011. The investigation has led to the indictment of eight Credit Suisse executives. Two of those executives have already entered guilty pleas.

What did the plea deal provide for?

The plea deal requires Credit Suisse to make a complete disclosure regarding its cross-border banking and investment activities. The agreement also obligates the bank to cooperate in IGA treaty requests for account information. Furthermore, the bank agreed to provide other financial institutions with information regarding other banks that transferred funds to or accepted funds from a secret account. Credit Suisse must also develop and implement programs designed to bring the institution into compliance with reporting requirements under FATCA.

The monetary aspect of the plea deal will require Credit Suisse to pay approximately $2.6 billion to state and federal agencies. $1.8 billion of the total will be paid to the Department of Justice for the US Treasury, $715 million will be paid to the New York State Department of Financial Services, and $100 million will be directed to the Federal Reserve. US Attorney Boente emphasized, “This prosecution and plea should serve notice that secret accounts and assisting the evasion of income taxes has a high cost. Concealing financial accounts from the US government is not a legitimate part of wealth management or private banking services.”

For US taxpayers with undisclosed foreign financial accounts with a balance exceeding $10,000 at any moment in the tax year, the Offshore Voluntary Disclosure Program (OVPD) may offer a way to resolve your tax problems and avoid a potential referral for criminal tax prosecution. However, caution must be exercised since there are a number of OVDP program variants – each appropriate for different tax circumstances and carrying varying levels of risk. While the program does carry a penalty, it often represents a significant discount from what would be paid should the matter be investigated. However, time is of the essence to enter this program since you will become ineligible once an investigation of your taxes has been opened.

Protect yourself from tax problems by working with the Brager Tax Law Group
The experienced tax attorneys of the Brager Tax Law Group are dedicated to assisting US taxpayers with their foreign tax problems. We develop legal strategies to correct FATCA, FBAR and other concerns. With years of experience handling tax compliance problems, our experienced attorneys can assist taxpayers with serious issues such as undeclared foreign bank accounts. Contact the Brager Tax Law Group today online or by calling 800-380-TAX LITIGATOR to discuss your legal options.

Conversations between a CPA and his or her clients may or may not be shielded from disclosure to third parties. Whether the accountant-client privilege exists is a fact-specific inquiry where the fact that your disclosures may not have been confidential may not emerge until it is already too late. This is chiefly because federal law does not recognize a generalized privilege between accountants and their clients.

While a selection of states including Colorado, Missouri and Florida do recognize the privilege, the privilege will only apply in state courts or in federal courts that are applying state law. In federal courts applying federal law, only a limited statutory protection applies to accountant-client communications. In contrast, the attorney-client privilege is recognized by all 50 states and in the federal courts. Furthermore, additional confidentiality may be provided through the work-product doctrine.

What is the purpose of confidentially privileges?
The intent of the attorney-client privilege and the accountant-client privilege is to foster an environment that is conducive to the client being able to offer all relevant information without fear of subsequent disclosure. These privileges are created to encourage people to seek, respectively, legal or financial advice. Such rules can encourage individuals to seek advice and proactively resolve their problems rather than conceal issues until they become insurmountable. Without an expectation of confidentiality, it is foreseeable that individuals would forego professional advice or withhold essential information. However, before making a disclosure it is essential to understand that the accountant-client privilege can be extremely limited.

The accountant-client privilege is subject to many exceptions
When it exists, the accountant-client privilege prohibits the disclosure of confidential information that has been provided to an accountant by a client. The statutory basis for the limited federal protections, 26 U.S.C. § 7525(a)(1), reads, “With respect to tax advice, the same common law protections of confidentiality which apply to a communication between a taxpayer and an attorney shall also apply to a communication between a taxpayer and any federally authorized tax practitioner to the extent the communication would be considered a privileged communication if it were between a taxpayer and an attorney.” In other words, in situations where the privilege is permitted to be asserted, the privilege would be equivalent to that provided by an attorney-client relationship.

Unfortunately, the broad sense of protection created by the previous provision is largely illusory. This is because the following section of the statute limits the application of the privilege to noncriminal tax matters before the IRS and noncriminal tax proceedings in the federal courts. 26 U.S.C § 7525(a)(2). Furthermore, any written communications relating to or regarding the promotion of the indirect or direct use of a tax shelter, as defined by 26 U.S.C § 6662 (d)(2)(C)(ii), are not protected by the privilege.

Furthermore, if a client was to pursue a malpractice action against his or her CPA, previously privileged communications may be admissible into evidence if they are relevant. Although similar problems can occur when suing an attorney for malpractice attorneys generally have higher duties of confidentiality than accountants. Considering that the taxpayer is ultimately responsible for the information he or she submits to the IRS, the possibility of malpractice can put an individual in a difficult quandary where they must choose between seeking accountability and disclosing their own tax problems.

Understanding the attorney-client privilege as applied to tax concerns
Many types of tax advice and legal guidance provided by a tax attorney may be protected by the attorney-client privilege, provided that the relevant requirements are met. This privilege is generally much more robust than the account-client privilege, although it cannot extend to the actual preparation of a tax return because such work is not generally considered to be legal advice.

However, a federal court recognized in US v. Deloitte, LLP that when at least some aspect of the material is prepared as part of an independent audit it can be protected by work-product if it is determined that the relevant portion of the material was prepared because of anticipated litigation. Furthermore, an individual who first retains an attorney and the attorney then engages with an accountant through a Kovel letter may be able to extend the confidentiality protections to cover the CPA as well. The use of an attorney merely as an intermediary would be insufficient to establish the privilege, but if the accountant is working under the direction of the attorney, the privilege would be likely to cover the accountant provided that the Kovel letter itself met legal requirements.

Put our legal experience resolving tax problems to work for you
The tax attorneys at the Brager Tax Law Group are dedicated to correcting taxes problems for our clients. To discuss your concerns confidentially, contact the Brager Tax Law Group online or call 800-380-TAX LITIGATOR to discuss your options.

Since January of 2014, those holding accounts in foreign banks throughout the world have received Foreign Account Tax Compliance Act (FATCA) letters from their financial institutions. These letters are sent to account holders whom the institution believes have a link to the United States that would give rise to tax reporting and payment obligations. These letters will request that the recipient provide information regarding their disclosures, if any, to the Internal Revenue Service (IRS). These disclosures typically include whether certain documents have been filed, including a Report of Foreign Bank and Financial Accounts (FBAR) and a 1040 personal return, and whether the individual has availed himself or herself of the Offshore Voluntary Disclosure Program (OVDP) administered by the IRS to resolve tax compliance problems.

If you have received such a letter, it is often essential that you seek the advice of a tax professional. Failure to do so can result in significant civil penalties or a referral for criminal tax prosecution. The Brager Tax Law Group can explain your legal situation and present potential solutions.

Why did I receive a FATCA letter?

If you have received a FATCA letter, you may already be on the IRS’ radar. FATCA requires foreign banks to identify accounts with a link to the US. Depending on the jurisdiction and the Intergovernmental Agreement (IGA) that is in effect, the bank or qualifying financial institution may be required to submit this information to the IRS or face significant fines and penalties. Understanding the agreements in effect in your jurisdiction can help you better understand the risks you face.

For FATCA purposes, there are two main models of IGAs: Model 1 IGAs and Model 2 IGAs. A Model 1 IGA is distinctive in that the banks can directly turn over an American account-holder’s information to the jurisdiction’s taxing authority. The foreign jurisdiction’s taxing authority will then pass that information along to the IRS.
In contrast, a Model 2 IGA, permits the direct transfer of information from the foreign bank or financial institution to the IRS. The IGA specific to your jurisdiction may also require special action for recalcitrant account holders or deem certain entities as “deemed-compliant foreign financial institutions” or “exempt beneficial owners.”

What are the potential consequences of FBAR non-compliance or other tax problems?

If a US taxpayer has failed to comply with his or her FATCA, FBAR, or other income tax reporting requirements, he or she could face significant penalties. When the non-compliant taxpayer’s account information is received by the IRS, he or she has likely already lost the right to participate in the various voluntary disclosure programs such as OVDP. A US taxpayer must avail themselves of the voluntary disclosure process prior to an investigation, or they will no longer potentially qualify for criminal amnesty or reduced civil fines.

Non-compliance with tax obligations can also lead to a civil tax action or criminal tax charges. A non-willful violation of FBAR obligations can result in a $10,000 fine for each violation. A willful FBAR violation can carry a penalty of the greater of $100,000 or 50% of the account balance for each violation. Criminal tax penalties can include significant prison sentences and fines that exceed the value of the accounts.

Contact the Brager Tax Group if you have received a FATCA letter

If you have received a letter from your foreign bank or financial institution, it is never advisable to ignore it or to do nothing. By delaying action, you may eliminate certain voluntary disclosure options that could have led to a more favorable resolution than would be possible otherwise. Furthermore, if you have received a FATCA letter you are already on notice that your account is likely to attract further attention from the IRS. Since you can no longer rely on secrecy in foreign banking, the actions you take could potentially create new civil or criminal liability.

However, if you act prudently and seek the advice of an experienced tax professional, he or she can then develop a strategy which may be able to correct your tax compliance issues with lesser penalties or fines. To discuss how the experienced tax professionals of the Brager Tax Law Group can assist you, call 800-380-TAX LITIGATOR or contact us online

Tax scams have likely been around for as long as taxes have been collected. In light of the significant penalties, fines, prison sentences and other consequences that can be imposed for tax non-compliance issues, taxpayers have good reason to be apprehensive or nervous if they are contacted by someone claiming to represent the Internal Revenue Service (IRS). Thus, if you are contacted by an IRS agent, it is always prudent to verify their identity, the fact that they are employed by IRS, and request a callback number at the IRS where the agent can be reached. Furthermore, if you are contacted by an individual claiming to represent the IRS or the US government, an experienced tax professional can often more readily recognize the signs of a tax scam.

At the Brager Tax Law Group we recognize that well-meaning taxpayers can face serious consequences if they are taken in by a tax scam. This post will identify and discuss a number of the more common tax scams and their consequences as identified by the IRS.

Tax preparer fraud can result in new tax problems

When selecting a tax professional, it is important that you work with an individual who is established, reputable and honest. While the IRS has taken measures to close down registered tax return preparers, others still exist. In many cases the hook utilized by a tax preparer is that they promise large, sometimes outlandish, refunds. Once ensnared, the dishonest preparer may unlawfully retain a portion of the tax refund without the individual’s knowledge or consent, misdirect funds that were intended to cover a tax obligation, or request excessive fees after obtaining your financial information.

The IRS now requires all for-profit tax preparers to obtain a preparer tax identification number (PTIN) which can be used as one aspect of your inquiry into the legitimacy of a tax preparer. However, you are ultimately responsible for the information contained within your tax returns. If you believe you have fallen victim to a tax scam, hiring an attorney to resolve your emerging problems and to protect you from allegations that may be levied by the IRS can result in a more favorable resolution.

An unanticipated phone call from someone claiming to represent the IRS may indicate fraud

If you receive a call from someone demanding a tax payment or requesting an urgent return call without first receiving written notice from the IRS, the caller is likely perpetrating a scam. These schemes can be sophisticated. They may spoof a caller ID to appear as if they are calling from the IRS. They may also know at least some information about you and your finances. Aside from the first indication of a lack of written notice, other tell-tale signs that the caller is actually a tax scammer include:

Threats to call the police to have you arrested for a failure to pay.

Requesting you to provide a credit card or debit card for payment over the phone.

A lack of respect for your rights as a taxpayer, including a lack of regard for the appeal process to which you are entitled.

Requiring you to pay in a certain form, often by prepaid debit card.

Understanding how a tax scammer operates can save you from the headaches, hassles and financial losses that can often accompany falling victim to a tax scam.

The IRS Announced FATCA Scammers are now Targeting Financial Institutions

While scammers have long leveraged the fears and anxieties felt by individual taxpayers, the aggressive moves by the IRS and the US government to detect American taxpayers with undisclosed overseas accounts has created similar compliance fears within the financial industry. According to a press release published by the IRS, scammers have recognized the new climate created by Foreign Account Tax Compliance Act (FATCA) and are attempting to exploit the fears of foreign and domestic banks to obtain confidential personal information.

For holders of foreign accounts and investments, this news provides yet another reason that an experienced tax lawyer can be extremely valuable. Even if you are unaffected by the scam, the Bank Secrecy Act creates an obligation to disclose foreign accounts where the aggregate value has exceeded $10,000 at any time during that tax year. Failure to comply can create huge liabilities.

Put our experience resolving tax problems to work for you

The tax attorneys of the Brager Tax Law Group work strategically and meticulously to help correct tax problems created by tax scams or noncompliance. To discuss your concerns confidentially, contact the Brager Tax Law Group online or call 800-380-TAX LITIGATOR to discuss your options.

Hong Kong has been conspicuously absent from the list of early signatories of the Foreign Account Tax Compliance Act (FATCA). That ended last month with Hong Kong announcing its long-awaited entrance into a Model 2 IGA with the US government. Covered Hong Kong-based financial institutions must now enter into separate foreign financial agreements (FFAs) with the IRS. This new agreement could result in some painful lessons for US taxpayers who have failed to report or pay taxes on their international assets. The remainder of this post will analyze the IGA announced by US and Hong officials and some of the potential consequences of such an agreement.

What conditions does this IGA impose on Hong Kong Financial Institutions?

All foreign financial institutions falling under the purview of FATCA — including investment entities, banks, insurance companies and custodial institutions – are required to register with the IRS. Aside from registration with the US taxing authority, the foreign financial institutions must comply with the terms of the IGA. Failure to adhere to these terms can result in a 30% withholding tax being imposed on relevant payments that originated in the United States.

According to the terms of the IGA (which is linked below), the IGA that Hong Kong negotiated and agreed to is a Model 2 IGA. There are two types of IGAs: Model 1 IGAs and Model 2 IGAs. Model 1 IGA is characterized by a process in which American account-holder information is turned over by the banks to the foreign taxing authority. The foreign taxing authority then turns that information over to the IRS. In contrast, a Model 2 IGA, such as this agreement, permits the direct transfer of information from the foreign bank or financial institution to the IRS. Article 2 also permits the IRS to make group requests regarding non-consenting accounts. A full accounting of foreign financial FATCA reporting requirements are set forth in Article 2 of the IGA.

Furthermore, according to the terms of the agreement, Article 3 sets forth stringent regulations for certain recalcitrant account holders. While foreign financial institutions must in some jurisdictions obtain the consent of account holders before exchanging information, penalties can still apply Under a Model 2 IGA, an individual must consent to reporting in order to open a new account. Furthermore, under this IGA model, the time period for a suspension of withholding due to account holder recalcitrance is limited. If the requested information has not been provided within six months after the information request is received, the withholding period will begin and the foreign financial institution will be required to withhold.

The IGA also contains provisions that permit foreign Hong Kong-based financial institutions to be treated as “exempt beneficial owners” or as “deemed-compliant foreign financial institutions”. Exempt beneficial owners are typically exempt from the withholding and registration requirements imposed by FATCA. Government entities, qualifying international organizations, and the Hong Kong Central Bank are all entities that could be deemed non-reporting financial institutions. Furthermore relevant, qualifying accounts could also be excluded from the statutory definition of “Financial Accounts”. Chiefly these accounts are “low risk” accounts. Other accounts that could receive similar treatment include a qualifying Hong Kong-based broad participation retirement fund, narrow participation retirement fund, the pension fund of an exempt beneficial owner, and financial institutions holding only low-value accounts. A broad array of additional account types and their factors to qualify for FATCA exemptions are set forth in Annex II of the IGA.

OVDP May Offer a Way Out of Tax Problems due to IGAs

Aside from information sharing agreements with foreign nations and financial institutions, there are also domestic US laws that require US residents to disclose their foreign financial accounts with a balance that exceeds $10,000 at any moment in the year. US residents who fail to comply with US tax law may find themselves the target of an IRS civil or criminal investigations.

The IRS has crafted the Offshore Voluntary Disclosure Program (OVDP) which may provide non-compliant US taxpayers with a means to correct their tax problems. There are a number of procedures that can be followed to apply for OVDP. One such procedure in the OVDP program is known as the “Streamlined Procedure”. If you were to work with an experienced tax lawyer, he or she would likely make you aware that the Streamlined OVDP is fraught with legal pitfalls. This is chiefly because Streamlined OVDP requires a certification that that taxpayer’s failures to report, pay taxes, and file FBAR were due to “non-willful” conduct. However, the IRS’ definition of willful conduct is not the common definition. Rather, the IRS’ concept of willful conduct is expansive and can be inferred by factors such as one’s conduct in requesting delivery of foreign statements to a foreign address or meeting “in secret” with bank officials. If it appears that willful conduct is present, your matter may be referred for criminal prosecution.

Put our FATCA compliance experience to work for you

The experienced tax attorneys of the Brager Tax Law Group are dedicated to advocating for US taxpayers in order to correct their FATCA and other tax compliance issues. With years of experience handling tax issues involving foreign assets, our experienced attorneys can assist taxpayers with serious tax issues such as undeclared foreign bank accounts. Contact the Brager Tax Law Group today online or by calling 800-380-TAX LITIGATOR to discuss your legal options.

Many people assume that when the IRS discusses or references “willful” conduct, the agency is using the term “willful” in its ordinary sense. Unfortunately, while ignorance may be an excuse, those who fail to rely on the advice and guidance of an experienced tax professional, may find themselves embroiled in serious tax problems. While the IRS presents the Streamlined Offshore Voluntary Disclosure Program (OVDP) as a means to avoid civil prosecution and fines, failure to understand the program’s requirements caused by not consulting a tax lawyer can result in harsh civil consequences or even a referral for a criminal tax prosecution.

What does the IRS consider to be willful and non-willful conduct?

For purposes of the Streamlined OVDP, non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law. While this standard may appear to a layperson to offer non-compliant taxpayers a quick and easy path out of tax compliance problems, the reality is that the standard is much more stringent.

This is partly due to the fact that, as part of the streamlined process, a filer must provide a certification that his or her conduct was non-willful. Furthermore, as part of the certification the taxpayer must “provide specific reasons for [their] failure to report all income, pay all tax, and submit all required information returns, including FBARs. If [the non-compliant filer] relied on a professional advisor, provide the name, address, and telephone number of the advisor and a summary of the advice. If married taxpayers submitting a joint certification have different reasons, provide the individual reasons for each spouse separately in the statement of facts.”

The requirement that a taxpayer prove that their conduct was not willful can be a difficult endeavor. To start, there is always the chance that IRS officials may disbelieve subjective statements made by the non-compliant taxpayer due to the likelihood of such statements to be self-serving. For instance, potentially innocent conduct could be interpreted as willful conduct due to the presence of badges of fraud. Signs that may indicate that conduct was willful to an IRS agent can include:

- Holding an account in a country or jurisdiction with banking secrecy laws. The historical, and most common example, of such a country with secrecy laws is Switzerland.

– Use of any entity or arrangement to conceal the ownership of the foreign account.

– Requesting the delivery of financial account statements to an address outside of the United States.

– Willful blindness to learning of one’s FBAR and other tax obligations.

It can be difficult to determine the types of objective evidence that could prove taxpayer conduct was non-willful. Without legal guidance, the well-meaning disclosures you make as part of your certification may be interpreted as an admission to willful conduct and later be used against you.

There are many instances where a required disclosure provided for the purposes of a streamlined OVDP can have unexpected and unanticipated consequences. For instance, the claim that failure to satisfy reporting requirements was not willful due to an oversight by a tax professional can be a risky claim. First, most CPA and tax professionals will inquire as to whether the client holds foreign accounts. Failure to disclose such accounts to a preparer may constitute willful conduct. Additionally, as discussed above, the individual must certify that the non-reporting of the accounts was due to non-willful conduct despite a professional preparing the taxes. A false certification can also result in civil or criminal liability. Finally, a professional tax preparer with a client under investigation by the IRS may be called before a professional board. Because the accountant-client privilege is not recognized in most jurisdictions, your tax preparer may disclose information to protect his or her license.

2014 OVDP Program offers an alternative to risky Streamlined OVDP

As an alternative to the streamlined process, there is also the 2014 OVDP. The 2014 OVDP is offered as an alternative to the streamlined process, meaning that a person can choose one or the other. The 2014 OVDP is designed to function as an amnesty program. Thus, there may be some level of protection from referral to the IRS’ Criminal Investigation Division. However, the 2014 OVDP does have a drawback in that a one-time 27.5 percent penalty is imposed on the maximum amount that was present in the foreign account. If criminal prosecution is a possibility, a 27.5 percent penalty may represent a substantial discount as penalties and fines imposed by criminal liability can exceed the account balances. Careful consideration is essential before a taxpayer selects a program, because rejection from the Streamlined OVDP renders an individual ineligible for the standard 2014 OVDP.

The tax law attorneys of the Brager Tax Law Group are dedicated to working with taxpayers and helping to correct and resolve their tax compliance issues. To schedule a consultation, contact us online or call us at 800-380-TAX LITIGATOR.

Las Vegas criminal defense attorney Paul Wommer, was convicted of tax evasion based on his failure to pay approximately $13,000 of interest and penalties imposed on the principal of his delinquent taxes. In a somewhat novel appeal to the 9th Circuit he argued he hadn’t committed “tax evasion” under Internal Revenue Code § 7201 because he had paid all of his tax debt, just not the penalties and interest. The court disagreed and instead took a more broad approach to the definition of taxes. Citing Internal Revenue Code § 6665(a)(2), which states that a tax shall also refer to the “additions to the tax, additional amounts, and penalties provided by this chapter,” the court found that the penalties would be considered taxes for tax evasion purposes. The Court also pointed to IRC Sections 6601(e) and 6671(a). IRC Section 6601(e) provides:

Interest prescribed under this section on any tax shall be paid notice and demand, and shall be assessed, collected, and paid in the same manner as taxes. Any reference to this title (except subchapter B of chapter 63, relating to deficiency procedures) to any tax imposed by this title shall be deemed also to refer to interest imposed by this section on such tax.

IRC Section 6671(a) provides:

Any reference to this title (except subchapter B of chapter 63, relating to deficiency procedures) to any tax imposed by this title shall be deemed also to refer to interest imposed by this section on such tax.

Thus, as the 9th Circuit saw it, tax evasion includes evading the payment of interest and tax penalties. Still its striking that the IRS would choose to pursue a criminal tax case based upon such a small amount of unpaid interest and penalties. Clients often do not view their conduct as being criminal, or they believe that because they are “small fish,” that the IRS will not bring a criminal tax case. While that may be true a lot of the time as Mr. Wommer found out with the wrong set of facts even small tax debts can morph into big tax problems.

Wommer’s case illustrates an increasing use of the evasion of payment prong of the criminal tax evasion statute. Internal Revenue Code Section 7201 makes it a crime not only to evade tax (as in filing a fraudulent tax return), but also willfully evading the payment of tax. Thus someone who willfully fails to pay their tax debt can be convicted of tax fraud even though their original tax return was perfectly proper. Of course not all non-payment of tax debt is considered tax evasion. However, Wommer stepped over the line when he started depositing money into the account of another individual in order to prevent the IRS from issuing a tax levy.

Call our experienced criminal tax attorneys at 1-800 Tax Litigator (1-800-208-6200) for a confidential consultation to discuss available options if you have been contacted by the IRS in connection with civil or criminal tax fraud or tax evasion, or any other high stakes tax problem.

Subscribe to the Free Online Publication, The Tax Terminator. It will keep you abreast of events that are making the news and perhaps affecting you or your business.

Several months ago the Brager Tax Law Group requested IRS documents through a Freedom of Information Act (FOIA) request, which was filed on behalf of the TaxProblemAttorney Blog.com. The Brager Tax Law Group received a CD in response to this FOIA request. Out of the 7,092 responsive pages, the IRS sent over 6,500 pages and withheld the rest. This information was published on the Brager Tax Law Group website in November. The requested documents included material used in training IRS personnel in the Offshore Voluntary Disclosure Program (OVDP), determining Program penalties and instructing IRS employees on the Program. The purpose of the OVDP program is for individuals who have failed to file an FBAR (Foreign Bank and Financial Accounts Report) form with the IRS, or didn’t report income from offshore activities to disclose their errors and to avoid criminal tax prosecution. The OVDP’s current penalty is 27.5 percent, but there are other alternatives available to certain taxpayers which may provide additional relief.

The OVDP is a complex program with countless rules; at times these rules may be conflicting. What complicates these OVDP rules are the “technical advisors” who review decisions that are made by individual revenue agents. Instead of being approved by the courts, these decisions are approved by these unknown advisors. The IRS does not disclose the identities of these technical advisors, which then doesn’t allow tax attorneys and their clients to communicate with these advisors directly. This material may shed some light on how decisions are being made.

The Brager Tax Law Group submitted a FOIA request in April and received the files about six months later. These files were stored on a password protective CD. These thousands of pages can be found on the Brager website on the offshore bank account problems page.

The Brager Tax Law attorneys are still in the midst of reviewing the documents. Since the IRS did not provide a complete response and there are many files that were redacted, it may be necessary to file suit in order to obtain the remaining documents.

If you have any offshore bank accounts or other tax problems, call the tax litigation attorneys at Brager Tax Law Group, A P.C.

Subscribe to the Free Online Publication, The Tax Terminator. It will keep you abreast of events that are making the news and perhaps affecting you or your business.